Daily Research News Online no. 2332 - Leisure Travel Potential

Leisure Travel Potential

May 2 2003

A new report from Mintel forecasts a promising outlook for European leisure travel despite the challenges facing the industry.

Despite the widespread coverage of the general malaise afflicting travel and tourism, the industry remains the biggest in Europe. 'In a climate of economic difficulty and political crisis, consumers may have become more modest in their outlay, and more tentative in their choice of destination, but they are still going on holiday' comments Richard Cope, Research Analyst at Mintel. Agents and operators, having shown resilience towards the advent of low-cost flights and online 'self-packaging', remain confident that they can succeed in the newly intra-regional European marketplace and then advance once the long-haul sector recovers.

The leisure industry has not only been rocked by the psychological impact of the terrorist attacks and a general rise in the level of political instability in the world, but also by the increasing importance of environmental considerations, as customers are becoming more sensitive to ecological and sustainable development. The Iraqi conflict and the outbreak of a new virus are yet another blow to the industry.

There are also internal challenges facing the industry. Whilst traditional full-service airlines have languished, or even gone bankrupt, impacted especially by the reduction in profitable business travellers, budget carriers have experienced explosive growth. Internet presence is now a necessity and the favourable cost structure of direct distribution is clearly recognised. The major investments in technology and the Internet, however, have notlived up to expectations in many cases

Mintel conducted exclusive research among leading tour operators in Europe and while the global situation remains uncertain, key players and Mintel are convinced that the leisure travel industry is to remain one of Europe's most robust markets and will bounce back.

European leisure travel has been a growth industry across the Continent. Spending on tourism accounts for an estimated 12% of total consumer expenditure in the European Union, making it the biggest single industry. Until the late 1990s, the leisure travel industry grew at an annual growth rate of 5% to 6%, or typically 1-2% above the overall consumer expenditure.

Tourism reached its zenith in 2000, when Europeans made some 344 million outbound trips, and an expenditure of Eur289 billion. Economic slowdown and the aftermath of September 11th, however, have severed the unbroken chain of steady growth in outbound European tourism stretching back to the Gulf War in 1991. The growth record of the late 1990s is a distant memory and Mintel estimates a volume gain of about 1% for 2002.

In spite of all these setbacks the industry has once again proved to be fairly tough and total expenditure on holidays is set to continue to grow. Mintel forecasts that total outbound trips from Europe will increase at an average annual rate of 4.2% between 1999 and 2015. France and Spain continue to rank as the top destinations for all EU countries except Austria and Greece. The Asia Pacific region was the fastest-growing destination for European travellers a couple of years ago. However current growth has shifted back to short-haul destinations in the Alps and around the Mediterranean.

Following the events of September 11th, the issue of security and safety has been at the very forefront of industry decisions. Security measures for airlines, airport operations and in the resorts have all been increased. 'Naturally, these developments present an enormous challenge to the travel industry, which finds itself in the position of having to adjust an essentially inelastic offer to continual fluctuations in demand around the world' comments Richard Cope. 'The problem of sudden disruptions at a destination is all the more serious when the tour operator is vertically integrated with its own hotel capacity in the country,' he adds.

New promotional strategies implemented by tour operators are greatly affected by advice and statements issued from governments and Foreign Offices and as a leading tour operator comments: 'The subject of safety is not just for tour operators but for governments and we can't influence them, we can only react.'

Another tour operator confirms there is only so much that one can do: There is never 100% security, there never was and there never will be. As a leisure group we don't have an ability to influence violence and nobody wants high-security holidays. Everybody can build a wall around a hotel but people don't want this. That would be capitulation of tourism to terrorism'.

The impact of September 11th on the propensity to travel appears to have halted the widely heralded trend toward increased long-haul travel in a shrinking world. This has been replaced instead by a more intra-regional market, which continues to grow as a result of the economic climate and concerns regarding the war in Iraq. Over the first eight months of 2002, short-haul travel grew by 2%, whereas long-haul fell back by 10%. Not surprisingly, Europeans have returned to ground transport which currently accounts for more than 50% of outbound trips, as air travel has declined.

Leading tour operators remain optimistic for the long-term, but at present, according to Richard Cope, 'people are increasingly booking closer to home and staying within Europe. There is a definite increase in intra-regional travel and I am sure it is down to the current economic and political climate. In the long term though, people will recover their desire to explore further afield.' Meanwhile, the market conditions bode well for low-cost airlines whose routes are primarily short-haul and intra-regional.